You may find when you are buying a property that your lawyer advises that there is a defect on the title of the property. This is something which might prevent you from being in a position to use or enjoy the property to its full potential, for example, there may have been building works carried out but the seller did not obtain planning permission or building regulation approval, there may have been a breach of covenant or the title may not include the necessary right of way or the right to use or access services.
As an alternative to rectifying the title indemnity insurance can be taken out to cover the risk. Your conveyancing solicitor will need to ensure that the indemnity insurance policy covers the full value of your purchase price and protects you and your lender (if you are buying with a mortgage) in respect of the defect in the title. Your lender will want to be informed of the need for the title indemnity insurance to protect their interest and make sure there is no risk or minimal risk to their security.
Essentially the defect remains on the title but the policy will cover any loss in value of your property when you come to sell or in the event that you are, for example, refused a right of way to access your property. Title indemnity will also usually cover any legal costs in the unfortunate event that an action is brought against you, for example, if the local authority brings an action against you for lack of planning permission.
If you are buying a property then your conveyancing lawyer will ask your seller to pay for the insurance policy or to put the required insurance in place on completion of the purchase. Obviously there are occasions when a seller may not wish to pay for insurance in which case you may have to negotiate with them and consider both of you paying part of the premium. However, in the current market most sellers would rather pay the whole of the premium than jeopardise losing their sale.
If you are selling and your buyer insists on you providing title indemnity insurance then your lawyer will usually obtain a quotation from a reputable insurance company and ask for a quote based on the value of the property, the particular defect and the level of risk involved. Often this will involve a one off payment and the insurance policy will be transferable to any future buyer – although on any future sale the owner may have to increase the limit of the indemnity to cover the increase in the value of the property at that time.
In order for the policy to be effective you must not try to remedy the defect or make any representations to third parties since this could invalidate the policy rendering the insurance void. Nor should you disclose the existence of the indemnity policy to any third party except on a sale at which time you must bring to the attention of your buyer.
If you are in the unfortunate position where you have to make a claim under the title indemnity insurance policy then you must contact the insurance company immediately so as not to invalidate the insurance or speak with your conveyancing solicitor straightaway.
If you would like to discuss title indemnity insurance or require details of our conveyancing service, please contact us on 0333 888 0404 or send us an email.